Wallen Products Inc. has just purchased a small company that specializes in the manufacture of electronic tuners that are used as a component part of LCD TVs. Wallen Products is a decentralized company. and it will treat the newly acquired company as an autonomous division with full prot responsibility. The new division, called the Tuner Division, has the following revenue and costs associated with each tuner that it manufactures and sells: Selling price $28 Expenses: Variable $11 Fixed (based on a capacity of 193,399 tuners per' year) 6 1? Operating income 33 3 Wallen Products also has an Assembly Division that assembles TVs. This division is currently purchasing 30,000 tuners per year from an overseas supplier at a cost of $20 per tuner, less a 10% purchase discount. The president of Wallen Products is anxious to have the Assembly Division begin purchasing its tuners from the newly acquired Tuner Division in order to \"keep the profits within the corporate family.\" Required: For [1) and [2) below, assume that the Tuner Division can sell all of its output to outside TV manufacturers at the normal $20 price. 1-a. What is the minimum transfer price for Tuner Division? 1-b. What is the maximum transfer price that Assembly Division is ready to pay? 1-c. Are the managers of the Tuner and Assembly Divisions likely to voluntarily agree to a transfer price for 30,000 tuners each year? 0 Yes 0 N0 2. lfthe Tuner Division meets the price that the Assembly Division is currently paying to its overseas supplier and sells 30,000 tuners to the Assembly Division each year, what will be the effect on the profits ofthe Tuner Division, the Assembly Division, and the company as a whole? V gin prot by The Tuner Division will have a(n) The Assembly Division will have a(n) c. The company as a whole will have am) decrease increase remains unchanged For (3) through {6) below, assume that the Tuner Division is currently selling onlyr 60.000 tuners each year to outside TV manufacturers at the stated $20 price. 3-a. What is the minimum transfer price for Tuner Division? 3-b. What is the range of transfer price the manager's of both divisions should agree? 3-c. It is assumed that managers are cooperative and understand their own business. Are the managers of the Tuner and Assembly Divisions likely to voluntarily agree to a transfer price for 30,000 tuners each year? 0 Yes 0 No 4-a. Suppose that the Assembly Division's overseas supplier drops its price (net of the purchase discount) to only $16 per tuner. Should the Tuner Division meet this price? 0 Yes 0 No 4-b. How much potential prot will the Tuner Division lose if the $16 price is not met? :Cl 5. Refer to (requirement 4] above. lfthe Tuner Division refuses to meet the $16 price, should the Assembly Division be required to purchase from the Tuner Division at a higher price for the good ofthe company as a whole? 0 Yes 0 No 6. Refer to [requirement 4) above. Assume that due to inflexible management policies. the Assembly Division is required to purchase 30.000 tuners each year from the Tuner Division at $20 per tuner. What will be the effect on the profits ofthe company as a whole? "he Tuner Division will have a(n) "he Assembly Division will have a(n) Iv: c. "he company as a whole will have a(n): decrease increase remains unchanged
